1. 1 Romania: Achieving Sustainable Growth and the Role of the Labor Market Jeffrey Franks European Department International Monetary Fund Bucharest January 26, 2011

2. 2 Where is Romanian Economy Today?  Significant progress in stabilizing the economy:  Improvement in the fiscal balance  Stabilization of the exchange rate  Easing of interest rates (lower risk premium on Romania)  Stabilization of the banking system  Improvement of external imbalances

3. 3 The Fiscal Balance

4. 4 The Exchange Rate and Risk Premium

5. 5 Interest Rates

6. 6 External Imbalances

7. 7  So stabilization has been fairly successful, but what about growth?  Romania needs strong, sustainable growth to converge to the living standards of the EU.

8. 8 Before

9. 9 Now

10. 10 The Future

11. 11 How does a country grow sustainably?  1. Increase the amount of capital (machines and equipment) in the economy  2. Increase the number of workers (or hours of work)  3. Increase the productivity of the economy (the amount you can produce per worker or per machine)

12. 12 Becoming more productive  Use labor more efficiently  Increase capabilities of workers (training, education)  Improve the quality of physical capital (e.g. get better machines)  Use capital more efficiently (e.g. put the machines in companies where they are best used)  Improve infrastructure  Make the public sector work better  private will also work better

13. 13 The New Program would aim to boost growth  Measure to increase use of labor  Measures to use labor more efficiently  Measures to improve investment in capital  Make key companies more efficient  Measures to improve infrastructure  Measures to make the public sector more efficient

14. 14 Labor Force participation-- low

15. 15 The employment challenge: young people

16. 16 The employment challenge: older workers

17. 17 The employment challenge: informal work

18. 18 The employment challenge: Low productivity agricultural work

19. 19 The productivity challenge: Gap between productivity and wages

20. 20 The Competitiveness challenge

21. 21 Addressing the Challenges  How do we increase employment and labor force participation, especially in key groups?  How do we improve labor productivity?  How do we improve competitiveness?

22. 22 Thank you!